Overproof rum tax hits bar drinkers
McPherse Thompson, Assistant Editor - Business
The tariff imposed on white overproof rum has brought parity to the liquor taxes, but one manufacturer has suggested that the more than 250 per cent increase will hit the company and consumers hard.
Consumers will now be required to absorb increases resulting from the change in the Special Consumption Tax on the rum, a flat rate of J$960 per litre imposed by Finance Minister Dr Peter Phillips.
Phillips said that in 2010, the then Government decided to tax selected alcoholic beverages based on their alcohol content, and that the change in the regime, effective June 1, was meant to correct that anomaly.
Until now, overproof rum has attracted ad valorem tax of 30 per cent the selling price of the product.
Rum currently retails at about J$60 to J$80 per drink. Phillips projects that his tax in about a J$7-$10 price increase at the bar, which translates to an 11.7 per cent to 12.5 per cent hike.
However, Paul Hamilton, marketing and sales manager at Worthy Park Estate, said that with a significant increase of more than 256 per cent in the tax regime, consumers will be subject to increases of between $20 and $30 per drink or, by Sunday Business calculations, upward movements of between 25 and 50 per cent.
Worthy Park is distiller of Rum-Bar Rum.
"The Government has gone ahead to say the impact of this will result in a mere J$7 to J$10 increase in price at the bar level when in truth and in fact that's misleading. There's no possible way such an increase in tax could result in that mere increase at the bar level," Hamilton said.
He said the flat rate which is replacing the ad valorem regime "will shake us big time" and that it would have to adjust its marketing campaign to manage the impact on its market.
The company is hoping, he said, that the Government will review the tax "to cushion the impact on our consumers".
The change in the tariff regime has brought white overproof rum on par with other liquors.
In 2010, the then Government imposed a single special consumption tax rate of J$960 per litre of alcohol on beverages such as beer and stout, wine and tonic wine, liqueur, vodka, whiskey, brandy, gin, and underproof and overproof rum, with the exception of white overproof rum.
There are different categories of spirits, but one of the main features used to differentiate them is the strength or alcoholic content.
Those with alcohol by volume under 51 per cent such as red rums, rum cream and liqueurs and wines are classified as underproof, while those with alcohol strength above that threshold are considered overproof.
Hamilton acceded that "the Government, along with international partners like the World Health Organisation, are on a drive to reduce the level of alcohol consumption. We also are very mindful of that. We want to preach and as much as possible force responsible drinking."
However, he explained that a majority of people who choose to consume white overproof rum do so because of the lower prices when compared with, for example, whisky and wine.
"It's not that they would not like to drink a whisky or a glass of wine, but this is what the people can afford. And this is one of our main concerns - the Government is for the poor, is for everybody and they (say they) will look out for us, for everybody. When they hit a product like this that a lot of the lower end of the market consumes, although it's consumed by other segments ... it's the less fortunate that's going to feel it more," Hamilton said.
He emphasised that Worthy Park Estate will try "our best to cushion the impact of the tax as much as possible".
In a notice this week, Worthy Park Estate recommended that "locally produced overproof rum remain in a category by itself as it has been in the past."
It continued: "Our product is made totally from local raw material and should be protected to compete against imported spirits like whiskey, brandy, gin and other alcoholic drinks made locally from imported raw material."
It also emphasised that "any increase in Rum-Bar Rum at this time will be solely due to the tax increase imposed".
Spokespersons for J. Wray and Nephew, the largest player in the local market, were unavailable for comment and did not return calls.
However, in a notice earlier this week, the company said that consequent on the change to the tax regime, "we have no choice but to increase the retail price of our full-strength Wray and Nephew white overproof rum".
"This price increase will result in the recommended retail price of a drink going up by no more than $20," the company said.
The special regime put in place in December 2010 by the previous administration to maintain the ad valorem SCT on alcohol for the tourism industry has also been replaced with a flat rate of $700 per litre of alcohol.